Discretionary-accruals models and audit qualifications

The primary goal of this study is to evaluate the ability of the Cross-sectional Jones Model and the Cross-sectional Modified Jones Model to detect earnings management vis-à-vis their time-series counterparts by examining the association between discretionary accruals and audit qualifications. These two cross-sectional models have not been formally evaluated by prior research, and their use may offer certain advantages to investors and researchers over their time-series counterparts. A sample of 173 distinct firms with qualified audit reports and a matched-pair control sample with clean audit reports are used. Only the two cross-sectional models are consistently able to detect earnings management. One limitation of this study is that its findings merely indicate the superiority of the cross-sectional models vis-à-vis their time-series counterparts in an audit qualification setting, not validate either the former or the latter.     

Customer relationship management: Finding value drivers

Despite significant interest from both academicians and practitioners, customer relationship management (CRM) remains a huge investment with little measured payback. Intuition suggests that increased management of customer relationships should improve business performance, but this intuition has only inconsistent empirical or real world support. To remedy this situation, this study identifies a core group of expected CRM benefits and examines their ability to increase a firm's value equity, brand equity and relationship equity which are components of customer equity. Ten propositions explore the anticipated effects of these drivers and form an agenda for future research. These propositions establish a framework for measuring CRM and supporting the link between CRM and performance.     

Conceptual maps of the leading MBA programs in the United States: core courses,concentration areas,and the ranking of the school

This paper captures the structure of MBA programs in 25 leading U.S. business schools at the beginning of the revolution these programs are undergoing. It is a study of strategic groups in the MBA industry, and a baseline for examining adaptation and strategic change in educational institutions. We use the Co‐plot method to map the schools according to the 1993 structure of their core courses and existing areas of concentration. The maps indicate similarities among business schools and shed light on their 1994 ranking. Each of the five top schools has been found to be in a different cluster of MBA program structures. The findings suggest that program structure content—the particular mix of core and concentration areas—in itself is not a source of superior performance. Copyright © 1999 John Wiley & Sons, Ltd.     

The Valuation-relevance of Earnings and Cash Flows: an International Perspective

We investigate which variable, earnings or cash flows, provides greater information for equity valuation within the United States, the United Kingdom, Canada, Germany, and Japan. We regress returns on earnings and cash flow metrics. We generally find earnings developed in three Anglo-Saxon countries—where capital is traditionally raised in public markets and reporting rules are unencumbered by taxation requirements—to have greater explanatory power for stock returns than cash flow metrics. Conversely, in two non-Anglo-Saxon countries—where capital is traditionally raised from private sources—earnings are generally not superior to cash flows for equity valuation, except in Japan, non-consolidated sample. While sensitivity analyses generally support the conclusions of our primary tests, in some of the additional analyses, earnings were superior to cash flows for samples from all countries. As expected, in all countries earnings have incremental information content over cash flows in explaining returns. Collectively, our findings provide two contributions. First, we generalize the findings of prior US research by showing that earnings are more important than cash flows for equity valuation in other Anglo-Saxon countries. Second and more importantly, our findings demonstrate that the superiority of earnings over cash flows is not universal. Rather, it depends on the national reporting regime and attendant institutional factors.     

Auditor Independence and the Cost of Capital Before and After Sarbanes–Oxley: The Case of Newly Issued Public Debt

An important aim of the Sarbanes–Oxley Act (SOX) was to reduce the cost of capital by enhancing auditor independence. However, prior literature has argued that SOX has been ineffective in meeting this objective. We contribute to this debate by first providing evidence suggesting that auditor independence has increased following SOX. Though we posit an inverse relationship between auditor independence and cost of capital, it is an open question whether this relationship has become stronger or weaker following SOX. An examination of this relationship reveals that auditor independence is more strongly related to bond rating and bond yield premium in the post-SOX period relative to the period before SOX. This evidence suggests greater price sensitivity of corporate debt to the level of auditor independence following SOX. We also show that controlling for the effect of auditor independence and other factors, cost of debt decreased following SOX.     

Discussion of “Investor Sophistication and the Mispricing of Accruals”

Collins et al. (2003, this issue) empirically investigate the relation between accruals mispricing and institutional ownership (IO), a proxy for investor sophistication. Their results show that accruals mispricing and IO are negatively correlated; less IO, more accruals mispricing. The authors attribute this differential in accruals mispricing to institutions' superior ability to price accruals either due to superior analytical ability or due to greater access to private information. While the research question is intriguing, a number of methodological limitations may limit the reliability and generality of the findings. In this paper, I discuss these limitations and offer ways of overcoming them, as well as identify a future research avenue in the area of mispricing.     

An Examination of Multiple Governance Forces within Bank Holding Companies

This study explores multiple means of governance and monitoring in bank holding companies and their impact on performance and executive compensation. We exploit variables unique to the banking industry to aid in our understanding of this simultaneous relationship. Our primary finding is that after controlling for both regulatory oversight and capital market discipline, a strong board is associated with higher firm performance, lower levels of executive pay and lower growth rates of executive pay. The findings support the fundamental role of corporate governance in overseeing management and ultimately firm performance.     

Industrial Clusters and Social Networking for enhancing inter-firm cooperation: The case of natural resources-based industries in Chile

This paper deals with the roles of geographic proximity, social networking, and regional culture-structures in triggering cooperation in marketing activities. The role of regional clusters in the growth of firms has been a key research theme. Our study compares marketing externalities and practices in clusters of three key natural resources-based industries in Chile, a region in Latin America where limited research has been conducted. According to the results, both social networking and geographic proximity facilitate inter-firm cooperation in marketing activities. However, these factors are considered differently in each of the three industries studied.     

Hoarding of international reserves: It's a neighbourly day in Asia

To explain why Asian countries seem to have been hoarding international reserves, especially since the 1997 crisis, we consider various regional neighbourhood effects. One such effect is that of “catching up with the Joneses”. We revisit that effect by analysing several refinements of it. We also consider the fear of the kind of contagion that the crisis‐hit countries saw in 1997. Finally, we look at the possibility of a regional financial cycle, in which the conditions that led to the crisis might have been correlated across countries. We find that refining the Joneses effect to take account of trade links strengthens its power to explain the build‐up of reserves. We also observe that a country that finds itself more vulnerable than its regional neighbours would tend to accumulate more reserves. Finally, we find that a common regional factor related to current‐account balances spurs further reserve accumulation. Contrary to previous analyses, our results suggest that only a couple of Asian countries have been holding excessive reserves. Some were actually holding less reserves than would be optimal in the presence of neighbourhood effects.     

Remaking the World of Chinese Labour: A 30‐Year Retrospective

Over the past 30 years, labour relations, and, indeed, the entirety of working‐class politics in China, have been dramatically altered by economic reforms. In this review, we focus on the two key processes of commodification and casualization and their implications for workers. On the one hand, these processes have resulted in the destruction of the old social contract and the emergence of marketized employment relations. This has implied a loss of the job security and generous benefits enjoyed by workers in the planned economy. On the other hand, commodification and casualization have produced significant but localized resistance from the Chinese working class. Up until now, the activities of labour non‐governmental organizations and of the official trade unions have contributed to the state's effort of individualizing and institutionalizing labour conflict resolution through labour law and arbitration mechanisms. Finally, we provide a brief discussion of the impact of 2008's Labour Contract Law and the outbreak of the economic crisis on labour relations. We conclude that the continual imbalance of power at the point of production presents a real dilemma for the Chinese state as it attempts to shift away from a model of development dependent on exports.